Schwarzenegger: Higher taxes will be vetoed

SACRAMENTO 
Democratic lawmakers on Wednesday insisted on higher taxes to close California's budget shortfall, even as Gov. Arnold Schwarzenegger fired off a warning that he will veto any plan that includes new revenue beyond what he has already proposed.

A Democratic-controlled legislative committee proposed increasing cigarette taxes by $1.50 per pack and imposing a 9.9 percent tax on oil production. It also wants a $15 increase in the vehicle license fee – which would be the second such increase this year – and require income tax withholdings for independent contractors.

Corporate tax breaks adopted in recent budgets would be eliminated.

Schwarzenegger said more tax hikes would be irresponsible, while Republican lawmakers described new taxes as harmful to an already wobbly economy, setting the stage for another drawn-out series of budget negotiations this summer.

Schwarzenegger and lawmakers already increased personal income, sales and vehicle taxes in a February budget deal. That was followed by voter rejection of all five budget-related ballot measures the governor and Legislature placed before voters during a May special election.

Schwarzenegger has interpreted the election results as a voter mandate to "cut, cut, cut."

He also was upset that the committee voted against his plan to reduce the pay of 235,000 state employees by an additional 5 percent. He implemented two-day-a-month furloughs in February that dropped workers' pay by 9.3 percent.

"We just had the largest tax increase four months ago, the largest tax increase in the history of California," Schwarzenegger said during a news conference outside his Capitol office. "So to now, four months later, come out and do another tax increase is irresponsible."

He added that "it will be very unfair to the people of California to have them protect state employees."

Democratic leaders of the Assembly and Senate defended their party's plan, which they hope to bring to a vote in the Legislature next week. They said it was important to use taxes to protect children and the state's most vulnerable.

"We can say we have a balanced budget, but there is shared pain all around," said Assembly Speaker Karen Bass, D-Los Angeles. "We also asked, though, that the shared pain be shared by oil companies and tobacco products, as well."

Democrats want a combination of spending cuts and tax increases to close California's $24.3 billion deficit for the fiscal year that begins July 1, while Schwarzenegger and Republicans say they will not allow general tax increases.

Schwarzenegger has proposed several ways to generate new revenue. That includes a fee on property owners – about $48 a year on average – to generate $76 million for firefighting and other emergency services. He also wants to accelerate income tax collections, primarily from people who are self-employed and file their taxes on a quarterly basis.

Republican lawmakers have been supportive of the governor's plan and criticized Democrats for not reaching their stated goal on cuts. The committee's report details $11.4 billion in program cuts and savings, while Senate President Pro Tem Darrell Steinberg previously said his party was aiming for $13 billion in cuts.

"Because the Democrats decided to play politics, the actual real vote could be weeks and weeks away," said Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo. "They are risking the solvency of the state by playing political games."

Another protracted budget stalemate this year will come with potentially dire consequences, with tax revenue running well behind the amount needed to fund government services.

The state controller has warned that lawmakers must pass a balanced budget within weeks because California will run out of money by the end of July.

In a typical year, California borrows money in late summer and fall to fund its operations, then repays the loan when the majority of tax revenue arrives in the spring. The controller and treasurer say private lenders will not extend those loans to California this year unless lawmakers pass a balanced budget.

Without such a loan, California will not have enough money to fund its day-to-day operations.

In addition to the emergency fee and early income tax payments, Schwarzenegger has proposed $16 billion in spending cuts and borrowing nearly $2 billion from local governments.

His cuts would close 220 state parks and eliminate health care coverage for nearly 1 million children from low-income families and California's welfare-to-work program.

Democrats say they want to preserve as much of the state's social safety net as possible. The committee's plan adopted most of the governor's new revenue solutions except for borrowing from local governments.

It also rejected Schwarzenegger's proposals to eliminate adult day care benefits, the state's welfare-to-work program, health insurance for nearly 1 million children and college fee assistance.

It imposed smaller cuts for Alzheimer's research and AIDS drug assistance programs than the governor proposed and called for eliminating California's high school exit exam.

The committee also rejected Schwarzenegger's plan for a new oil drilling project off the Santa Barbara coast, which he said would generate $1.8 billion in royalties over 14 years.